Sept. 29 (Bloomberg) -- Yerba mate -- a caffeinated South
American drink brewed like tea from the dried leaves of the
mate plant -- is a niche product in North America. Guayaki
wants to take it mainstream. The 40-employee Sebastopol,
Calif., company is trying to prove that a beverage popular
with Whole Foods customers can win over 7-Eleven and
Kroger’s shoppers, too. Selling loose mate leaves and bottles
and cans of the brew, 14-year-old Guayaki had $10 million in
sales last year and is projecting $13 million in 2010. Few other
beverage makers sell mate in the U.S. Two Coca-Cola brands
recently entered the market: Honest Tea launched a mate line
last year and Minute Maid started selling juices flavored with
the herb in March.

Guayaki also wants to use its business to rescue the forests
in Brazil, Argentina, and Paraguay, where mate is grown. To
date, the company says it has restored 20,000 acres of forest.
As part of the Clinton Global Initiative, it committed to restore 40,000
acres of the Atlantic Rainforest in southern Brazil and create
living wage jobs for 250 families in the area’s indigenous
Marrecas community. Now it’s seeking $1.5 million in grants and
loans from the initiative’s partners to meet that goal in the
next two years. Guayaki co-founders David Karr and Alex Pryor,
both 39, spoke recently with Bloomberg.com’s John Tozzi about
expanding their business and their social mission. Edited
excerpts of their conversation follow.

John Tozzi: Describe the yerba mate market.

David Karr: Yerba mate is part of a half-trillion-dollar
stimulant category. Of all the stimulants on the market --
coffee, tea, kola nut, mate, guarana, cacao -- it’s the new and
emerging category. It’s probably $1.5 billion or $2 billion at
most. We’ve taken this product and we put it into multiple
formats and created a market-driven restoration business model
around it. If anyone buys the product, they’re driving [forest]
restoration down in Brazil, Paraguay, and Argentina. That’s the
only place in the world that mate grows, in the subtropical
Atlantic Forest between the 20th and 30th parallels.

Q: What are the problems in those countries that your business
model is trying to solve?

Alex Pryor: There’s 7 percent of the original forest left. It’s
second-highest in biodiversity, right below the Amazon. Of that
7 percent that’s left, the major causes of deforestation are
different industries like corn, soybeans, and the lumber
industry that are cutting the forest down. The consequences are
huge: It just becomes big corporations that own this land and
cultivate cash crops. You’ve got contamination of the rivers and
soil. What Guayaki is doing is bringing an economic alternative
that will restore the forest and restore the watersheds.

Q: You’re $10 million of a $1.5 billion yerba mate market. How
do you handle the costs of using fair-trade labor and restoring
forests when you have competitors with lower costs?

David Karr: Even the largest yerba mate company down there tried
to come to the U.S. market and they failed. We’ve innovated. We
have shots and bottles and cans. We’re making it available to
the ‘gringo’ in the way the gringo wants to take it. Even with
the loose mate, which is still half our business, when you grow
it in the forest you have a higher-quality product. We’re
proving that it’s profitable to restore communities and restore
forests.

Alex Pryor: Is it challenging for us, internalizing all these
costs? Yes, it is. After being in business for 14 years, we’re
bringing a profitable model. We’re being recognized at the
Clinton Global Initiative as a market-based solution to social
and environmental problems.

Q: How do you get from where you are now to being a $100 million
company?

David Karr: The cans. We only launched our first [packaged]
beverage in 2005. We started in 1996 and we had tea bags and
loose mate for the first eight years of our business. Then in
2005, with $100,000, we launched bottled beverages. We’ve
basically been selling mate into natural food stores, the Whole
Foods of the world. This year we launched the cans. Instead of
selling at $2.49, these are $1.99, three for $5 -- everyday
prices. Those are going into Kroger’s and 7-Elevens and mass-market stores. We’ve been playing in 2 percent of the universe.
Now we’re going after the other 98 percent.

Q: How do you maintain your social mission as you reach that
mass market?

Alex Pryor: We put in the same balance: the economic goals
together with the social goals, together with the environmental
goals. We need these three objectives to go parallel. So far
we’ve been able to achieve that. We’ll see how challenging it
becomes in the future. In a way, the more demand we have, the
better, because the more yerba mate we sell, the more [forest]
we can restore. That’s the whole reason why we started the
business, to create this market solution.